FTC Warns Gem Marketers to Disclose Synthetics

Recent changes to the Commission’s jewelry rules add new facets but keep sharpness

Confession

This is hard to admit, but please hear us out.

This article is about eight warning letters sent by the Federal Trade Commission (FTC or Commission) to jewelry marketers. When we ran across it, we naturally gave free reign to our unhealthy desire for snappy pop cultural references. Because dated or not, this one was good: Prince’s 1991 R&B chart-topper “Diamonds and Pearls.” How would we shoehorn it into our finely crafted prose?

Unfortunately, during our research, we were brought up short by a July 2018 blog entry from the Commission announcing revisions to its Guides for the Jewelry, Precious Metals, and Pewter Industry (Jewelry Guides). And there it was: a Prince reference. Our Prince reference. Complete with rewritten lyrics and this groaner: “…we like to think of [the Jewelry Guide] as the C.F.R. Entry Formerly Known as the Guides for the Jewelry, Precious Metals, and Pewter Industries.”

Apparently, we have the same sense of humor as the Federal Trade Commission.

We’re thinking about hanging it up, folks.

Scratching Glass

Back to the fruits of our research (with no further pop references): In July 2018, the Commission announced changes to its Jewelry Guides as part of its regularly scheduled review process. The revisions covered quite a bit – adjustments to alloy thresholds, the nature of composite gemstones, just what “gem” means anyway, and so on.

One of the major revisions tackled “qualifying claims about man-made gemstone products.” For those unfamiliar with the concept, labs have been churning out man-made gems – products that are chemically and structurally identical to mined gems but available at a much lower cost – for some time now.

The old rules advised against marketing a synthetic gemstone product with the name of a natural stone “unless an equally conspicuous ‘laboratory-grown,’ ‘laboratory-created,’ ‘[manufacturer name]-created,’ or ‘synthetic’ disclosure immediately preceded the term.”

The Takeaway

The new rules add a bit of flexibility, allowing marketers to “use words or phrases immediately preceding the gemstone name other than the ones listed … if they clearly and conspicuously disclose that the product is not a mined stone.” For example, the use of the word “cultured” to describe synthetic diamonds creates confusion in the mind of consumers, so it is verboten without an additional tag like “laboratory-grown.”

In its warning letters, the FTC is accusing the unnamed companies of violating the new rules in their online advertising, specifically because they fail to disclose that their jewelry is made with simulated or lab-created diamonds and falsely implies that the jewelry contains mined diamonds. If these companies continue to fail to comply with the new rules, they could face a maximum penalty of $42,530 for each violation. You can view a sample letter here.

In several of the letters, the Commission directs the companies to its Green Guides and further warned them against touting “the environmental benefits of your jewelry compared to mined diamonds … we note that marketers must have a reasonable basis for any environmental benefit claims they make for their products and qualify any such claims adequately to avoid deception.” We wouldn’t blame you for wondering how the same letter could caution against failing to adequately disclose that the diamonds are laboratory grown and at the same time warning about potentially falsely claiming that your laboratory grown diamonds have environmental advantages over mined diamonds.

The timing is unclear, but companies were given at the most two weeks to reply with a plan for revising their ads.

McQueen Estate Wants to Unravel a Tom Ford Sweater

Fashion line used Bullitt star’s name to hawk iconic cardigan

Totes Retro

Remember the Steve McQueen estate’s legal dust-up with Ferrari back in July? In that case, Chadwick McQueen, administrator of the estate and the actor’s son, went after the luxury automaker for capitalizing on his father’s persona as a skilled, risk-taking driver. According to McQueen the younger, Ferrari released a “special edition” car called “The McQueen” and used an image of his father and ad copy specifically tying the car to McQueen the elder’s own classic Ferrari model.

The estate accused the manufacturer of trademark infringement, false endorsement and unfair competition, but the suit evaporated in December, with both parties going their separate ways. (It’s unclear whether a settlement is in the offing.)

Oddly Specific, But Okay …

Well, this April, the McQueen estate took a swing at another luxury brand: The estate sued Tom Ford, the tony clothing and eyewear line that’s graced the frames of celebrities, musicians and other tastemakers since 2006 (Justin Timberlake even gave the line a shout out in his hit “Suit & Tie.” That’s marketing.)

According to Chadwick McQueen, Tom Ford tried to capitalize on his father’s status as a fashion icon by producing a series of “wool cardigan sweaters with shawl collars” – a style of knitwear that McQueen père redeemed from its staid-dad ’50s roots by sporting it in hit movies. This fashion, the complaint notes, won McQueen the title of “the lord of manly knitwear,” a title we didn’t know was up for grabs, but hey – congrats.

The Takeaway

The problem, McQueen fils maintains, is that Tom Ford, along with its retailers – Neiman Marcus and Bergdorf Goodman – used the McQueen name to market the sweaters without the estate’s permission and then allegedly refused to remove the name from the line when confronted by the estate. Similarly, the estate asserts that the “[d]efendants also used the Steve McQueen Intellectual Property to promote the [sweaters] through word-of-mouth promotions, communications with retailers, industry insiders, and members of the public.”

The suit, filed in California Superior Court, L.A. County, charged the defendants with false endorsement and designation of origin, violation of the actor’s rights of publicity under California state law, unfair competition, and trademark infringement. In addition to the defendants’ discontinued use of the McQueen name, the plaintiffs seek at least $1 million in compensatory damages, statutory damages of $2 million per registered trademark and $750 for each violation of California law.

Oh – we thought we’d mention that one of the sweaters goes for $2,390. It’s enough to make you want to file your own suit.

Google, YouTube and Alphabet Shake Off COPPA-Related Complaint

Here’s an update to a case we covered in June 2018 – one Sirdonia Lashay Manigault-Johnson and her minor son, nicknamed “R.R.,” sued Google, YouTube and the companies’ parent entity, Alphabet, for allegedly “exfiltrating” her son’s personal information. Such “exfiltration” allegedly occurred when R.R. viewed videos on his mother’s mobile device that resulted in his personally identifying information going to the defendants.

The complaint asserted that YouTube failed to secure her consent and neglected to provide notice that it was gathering information on R.R., which she maintained was an intrusion upon seclusion in violation of the Children’s Online Privacy Protection Act (COPPA) and violations of California’s constitutional right to privacy and South Carolina’s instruction on seclusion protections.

Double Time

Alphabet, Google and YouTube moved to dismiss with two separate motions – the first claiming that Alphabet should be excused from the suit because, as the parent company, it was not responsible for the alleged misdeeds of its subsidiaries.

The second motion argued that the case needed to be tossed because it was an “attempted end run around [the] exclusive enforcement structure” of the Federal Trade Commission (FTC) – the chief enforcement agent of COPPA under the law. Because Manigault-Johnson was pursuing state claims, the entire case was pre-empted by federal law.

Trying to cover one more base, the motion also held that Manigault-Johnson failed to state claims under state law because the courts had created a record that the behavior in question did not “constitute a breach of social norms or an intrusion into intimate affairs sufficient to state a claim for violation of state privacy laws.”

The Takeaway

On March 31, the District of South Carolina came down firmly on the side of the Google gang.

First, the court’s order allowed Alphabet to bow out altogether; the court agreed with the company’s assertion “that Plaintiffs’ complaint only addresses specific conduct on the part of YouTube and Google and does not allege that Alphabet engaged in any independent wrongdoing.”

So much for Alphabet.

Of more interest to ad law enthusiasts – particularly those interested in the culpability of high-tech platforms in privacy disputes – was the court’s dismissal of Manigault-Johnson’s intrusion upon seclusion claims under both California and South Carolina law. The court found that although she alleged Google and YouTube had gathered information from children without parental consent, it was not “entirely clear” that this collection on its own was “sufficient to allege an intentional intrusion into a matter as to which Plaintiffs had an objectively reasonable expectation of privacy.”

Having maintained that the collection of information was not enough to support the California claims, the court wasn’t required to rule on the COPPA pre-emption argued by Google and YouTube. But it did anyway.

The court noted that the plaintiffs’ claims were predicated on violations of COPPA rather than on state law as the plaintiff asserted, and as such, “in the interest of creating a complete record, the Court simply notes … that Plaintiffs’ complaint does not accuse Defendants of conduct beyond that regulated by COPPA.”

And so went the rest of the case. Heads up to anyone facing down a case where, as the court put it, “Plaintiffs seek to use the vehicle of state law to privately enforce the provisions of COPPA.”

BBB Declares Near-Total Compliance to IBA Oversight

Accountability Program hits 100; engages in wistful look back

All Grown Up!

Launched in 2011, the Interest-Based Advertising Accountability Program (IBA Accountability Program) just reached a major milestone: 100 public actions reviewing and enforcing advertising in line with the Digital Advertising Alliance’s (DAA) self-regulatory privacy principles.

(For those not in-the-know, the DAA manages the AdChoices program, whose logo can be seen on various websites throughout the internet.)

The DAA brought the IBA Accountability Program into existence by tapping the Better Business Bureau (BBB), the iconic marketplace-trust-building nonprofit organization. The BBB built and administers the IBA Accountability Program – which now, after reaching its 100th public action, is eager to share what it has learned and engage in some well-deserved self-promotion.

Just Doing Our Job

Before we summarize the report, we should note that its release coincides with the announcement of the program’s 99th and 100th cases, which are worth a look.

We’re not sure which is number 99 and which is 100, but both cases followed a similar pattern. The IBA Accountability Program claimed that third-party advertising companies were collecting visitor data on genetic testing company MyHeritage’s site – without an “enhanced notice” to users that would have disclosed the third-party data collection practices to site visitors in accordance with Section II.B of the Self-Regulatory Principles for Online Behavioral Advertising (OBA Principles). The company listened to the IBA Accountability Program’s concerns and added an appropriate notice link. Mizzen and Main, the manufacturer of moisture-wicking, wrinkleless menswear, faced a similar review and added an enhanced notice and updated its privacy policy in response. Among other requirements, Section II.B. of the OBA Principles requires website operators to “post a clear, meaningful and prominent link to a disclosure on any web page through which [interest-based advertising] data is collected.”

The Takeaway

Here are some of the report’s findings:

The majority of the program’s public actions involved desktop computer environments, with a smaller fraction involving mobile advertising.

The IBA has handled roughly the same number of cases involving first-party publishers (35) and third-party advertisers (28). Six cases featured review of both types.

But the report also delves into the history of the program and many of the issues that preoccupy its members – including location-based data, opt-out tools and cross-device ads. It’s worth a read.

But perhaps the major takeaway from the report is something that the 99th and 100th cases demonstrated (whatever their order) – nearly every case ended with cooperation and compliance from the investigated companies.

Snack Box Company Settles Commission’s FTC Act and ROSCA claims

California-based UrthBox is part of the boxing trend that’s swept the country of late. To be clear, we’re not talking pugilism. The trend involves gourmet or to-order products delivered by box to the consumer’s doorstep; the products range from food and clothing to beauty supplies. Many of the boxes ship with a “surprise” assortment of products that the consumer only discovers when the box arrives.

What does the boxing trend signify? Is it merely a consequence of highly efficient delivery systems that can ship almost anything anywhere on the cheap? Or is it a sign that American consumers are completely bored and need to send themselves surprises to fend off the ennui? Both?

Who knows?

In any case, UrthBox has staked its claim in the healthy-snack corner of the boxing landscape, selling subscription boxes with a variety of vegan, gluten-free or diet crackers, nuts, seeds, crisps, juices and so forth. Shoppers choose a box size, pay a monthly rate and wait for their boxes to drop.

ENOUGH WITH THE CAPS

Unfortunately for those consumers, UrthBox was running a negative option/auto payment scam – or so says the Federal Trade Commission (FTC) in its recent complaint against the company and its chief executive.

The FTC claims that UrthBox drew in consumers with a “free box” claim, including web advertising tags like this:

But once consumers provided payment details for the shipping costs of the trial box, the complaint maintains, UrthBox automatically enrolled them in a six-month subscription, which could range in cost from $77 to $269, depending on the size of the subscription. Consumers were required to cancel prior to the first of the month following receipt of the box to avoid the charges.

The FTC claims that UrthBox initially failed to disclose the length of the subscription or the amount of the charges, and when it eventually included information on its site, buried the terms on pages that the consumer was not required to visit prior to purchase.

Chutzpah

But the meatiest allegation – sorry vegans – involved a compensated endorsement scheme that made use of the Better Business Bureau’s (BBB’s) website. The BBB requires that reviewers certify that they “have not been offered any incentive or payments originating from the business” to write reviews; otherwise, the BBB will not post the customer review.

In the complaint, the FTC claims that UrthBox’s customer service department engaged in a brazen conversion scheme: “In numerous instances … representatives offered to send [customers] a free snack box if they posted positive reviews on the BBB’s website.” UrthBox’s representatives “offered participation in the incentive program to hundreds of its customers, including some who called to cancel their snack box subscriptions.”

As a result, the FTC claims, “Customer reviews on the BBB website grew exponentially from 9 reviews in 2016, all negative, to 695 reviews in 2017. . . . Consequently, the ratio of positive to negative reviews jumped from 100% negative to 88% positive after implementation of the incentive program.” Additionally, one can assume that, in order to post, the customers misleadingly reported that their reviews were not incentivized in contravention of the BBB’s requirements. UrthBox was accused of similar efforts on Trustpilot.com and various social media platforms.

The Takeaway

The FTC charged the company with three violations of the FTC Act – failure to disclose negative option terms, false claim of independent reviews and failure to disclose material connections – and an illegal negative option marketing charge under the Restore Online Shoppers’ Confidence Act for good measure.

As is so often the case, the complaint was settled the day it was filed. While UrthBox did not admit or deny any of the allegations, it promised to scour websites to remove compensated reviews, fully disclose future endorsements, and refrain from the allegedly unlawful auto payment and negative option practices in the future.

A $100,000 monetary judgment, “which may be used to provide refunds to affected consumers,” served as a final penalty.

Check Out Our Latest Blog Posts

Imagine you are playing golf, badly, and at the fourth hole a caddy appears out of nowhere with a large box and an offer. In exchange for $20, you can open the box, which may contain high-tech clubs to improve your game, fashionable new gloves or a voucher for a free round. Perhaps you hesitate, uncertain whether paying $20 will be worth the potential reward, but those new golf clubs are tempting. Now imagine a similar offer, but digital and within one of your favorite mobile games, where items are nontangible and there is more uncertainty around reusability. In the gaming world, these offers are referred to as “loot boxes.” Read more and subscribe here.

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Over the past year, a host of new national, state and local laws have been introduced to regulate the collection and use of biometric information. Although these proposals vary in their requirements, certain elements appear to be inspired in part by the Illinois Biometric Information Privacy Act (BIPA), which has been the subject of significant litigation in recent years. For an overview of notable proposed legislation, click here.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.

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